Treasury Today Country Profiles in association with Citi

A sustainable future

Close up of cactus plant

Sustainability is an evolving issue and one that can’t be ignored. Treasuries have a role in helping to fulfil the company’s corporate social responsibility – but it isn’t always clear how they can help. Here, we take a look at some of the options available to embrace ‘greener’ business, without impacting profits.

The impact of sustainability issues on treasury may not be immediately obvious. But when you consider the following examples, it becomes clear that it is in every department’s best interest to engage in the company’s corporate social responsibility (CSR) programme:

  • An increasing number of consumers look to make informed choices about companies on the methods used to source materials and manufacture, as well as the company’s own sustainability performance.

  • International banks are, in some instances, encouraging clients to maintain stricter standards of environment protection to ensure they receive finance (for example, producers of palm oil).

  • Carbon-intensive sectors may face an increase in the cost of capital and environmentally damaging practices in general are coming under fire from the regulators and public alike.

  • The risks that natural disasters, ones which occur as a result of the world’s rising temperature, pose to the continued operation of business are on the rise.

Indeed, looking after CSR concerns is part of an effective risk management strategy. But sometimes organisations have difficultly navigating the vast, and potentially daunting, range of sustainability initiatives, investments and agendas that companies can be engaged in. Against this backdrop, Treasury Today explores some of the key developments in the industry and the areas where treasury can look to ‘do its bit’: circular supply chains and paperless treasury.

Circular economy

Currently, in a predominantly linear economy, the world’s manufacturers extract raw materials, using fossil fuels to ship and process these in order to make products that are disposed of in landfills after use. One way of tackling such excessive waste is to change the structure of business models, so that products maintain their quality and usefulness for a much longer duration.

Advocates of a circular economy propose that products should be designed to be disassembled and regenerated; where the goods of today become the resources of tomorrow. But it’s more than just a CSR ‘plug-in’: the Ellen MacArthur Foundation, SUN and McKinsey have identified that by adopting circular economy principles, Europe can create a net economic benefit in 2030 of €1.8trn compared to today, double that offered by the current linear development path.

“Remanufacturing, for instance, could imply savings in terms of production costs that range from 30% to 90% of the cost of producing a new product from virgin materials,” says Dr Donato Masi, Assistant Professor, Supply Chain Management, University of Warwick.

From supply chains to supply circles

This, of course, would be a huge change for the supply chains of today. “For companies to capitalise on this opportunity, business models as well as collaboration across the supply chain need to be reconsidered,” says Jocelyn Blériot, Executive Officer, Ellen MacArthur Foundation. He provides the example of La Place – 100 of the company’s restaurants in the Netherlands provide waste coffee grounds to GRO-Holland, a company that uses them as a growth substrate for oyster mushrooms. The mushrooms are then sold back to the same restaurants to be used as ingredients. The supply chain is therefore made symbiotic or ‘circular’ by turning one player’s by-products into feedstock for the other.

As a result of such business models, there are, Blériot says, some effects on companies’ working capital and financing needs. “In the symbiotic ‘circular supply chain’ model there is a potential reduction in non-payment risk. Players become both buyers and suppliers and so possess a more equal balance of economic power, likely formalised by contracts that incentivise the continuation of the relationship.”

Sharing economy

Another disruptive business model comes in the form of asset sharing. Your meeting rooms, printing facilities, and production staff – can you imagine sharing them?

When businesses have overcapacity of equipment, knowledge and skilled personnel, it can be seen as wasted revenue. For example, FLOOW2 was founded based on the idea that companies can rent out any equipment or personnel not being deployed at capacity. For those companies that rent, the benefits are the convenience offered without having to invest substantially themselves. It represents a change in mind-set from ownership to access and the founders see a sharing economy being an integral part of the future.

Slock.it offers a similar business proposition based on blockchain technology, claiming it can provide the future infrastructure of the sharing economy.

Pay-per-use

Another example of a circular business model is pay-per-use. Blériot uses the example of Philips, a company that in addition to selling lightbulbs now signs contracts to provide light by the lux (a measure of light produced). “The company keeps ownership of the lighting system, taking care of maintenance and remanufacture during the contract. When compared to traditional sales models, this can be more profitable for the manufacturer and cheaper for the user.”

Such innovative business models, which are based on services rather than product ownership, and innovative consumption patterns are gaining an increasing importance, says Masi. “Current trends suggest there will be rising prices and an increasing competition for raw materials.” Therefore, he believes, the circular economy represents an answer to these challenges and an opportunity to find synergies between the protection of the environment and the growth of profit.

But if corporates want to truly exploit the potential of the circular economy, Masi says, the principles of the circular economy need to be embedded at the strategic level of business model innovation. This cannot be done “by simply trying to make a production process green, or a closed loop supply chain more efficient. These principles should be embedded at the very early stages of product design, supply chain design, and definition of the commercial strategy.”

Paperless treasury

Whilst embracing sustainability in treasury may seem like a major overhaul, it is important not to miss opportunities that already exist in current projects. Improving CSR may not require the extensive effort that some may assume. Although originally submitted for other categories (including Best Working Capital Management), Amway India’s implementation of a virtual card accounts (VCA) solution – the first of its kind in India – was recognised by the Adam Smith Awards Asia 2015 as the winner for Best Corporate and Social Responsibility Initiative.

Amway India offers Indian citizens an unparalleled opportunity to own and operate their own business selling more than 140 high quality consumer products. Despite its exponential growth in India, the company’s payments and reconciliation processes have remained largely manual, which consumed considerable manpower.

Therefore, the treasury set out to tackle invoice processing costs and inefficiencies, increase the interest earned on cash surplus and extend the days payables outstanding (DPO) without additional cost. But the results in changing the paper-intensive workflow highlights that projects run by treasury can often have additional advantages.

The solution was a paperless supplier finance programme from Citi with no requirement for specific transaction documents or frequent invoice audits. Unlike traditional supplier finance programmes, the VCA scheme requires no documentation-intensive on-boarding process. Suppliers can use their existing credit card processing terminals to process the VCA payments and no additional equipment is needed.

“If corporates want to truly exploit the potential of the circular economy, the principles of the circular economy need to be embedded at the strategic level of business model innovation.”

Donato Masi, Assistant Professor, Supply Chain Management, University of Warwick

As a scalable and sustainable process implemented in an aggressive timeline of four months, the solution has been instrumental in extending Amway’s DPO by 45 days, and increasing its profit before tax by an estimated $425,000 in the first year.

Combining robust payment security, enhanced data through the setup of internal controls and approval workflows, the solution has improved compliance, efficiency and visibility of Amway India’s sourcing and purchasing processes. Currently, 12 vendors are enrolled in the VCA programme. The number of participating vendors is expected to increase to 30 with the gradual rollout of the scheme.

What’s more, with no requirement for specific transaction documents or frequent invoice audits, coupled with their aggressive growth targets, the solution can only remove more paper going forward and has set out the environmental standard for the future.

This award demonstrates that it is worth investigating, when carrying out projects, whether additional improvements can be made in terms of the department’s reliance on paper and energy resources. Combining CSR priorities with one’s treasury are more familiar with may be a good stepping stone to a sustainable future – see our top tips for some ideas.

Top tips for paper reduction

Make the most of your bank’s online offering. Logging into your bank’s online platform to view bank accounts will surely be much quicker than digging out the relevant file. It also provides added security controls and keeps an easily accessible record of reviewing and approval processes.

Embrace e-invoicing. In addition to the cost benefits that have been so widely reported, e-invoicing leads to greater consistency and standardisation, which in turn helps to reduce organisational complexity.

Say goodbye to cheques. Using electronic payments instruments improves visibility, reduces the risk of fraud and can significantly reduce costs. Consider wire payments, cards programmes and mobile solutions. Where customers persist in paying you by cheque, discount incentives for signing up to direct debit may be useful.

Consider electronic bank account management (eBAM). Do away with paper-intensive account opening and maintenance procedures to really improve efficiency and control.

Set up digital treasury workspaces. Whether in a secure cloud environment, or protected on your work server, archive reports and other documentation electronically. The search functionalities this provides can prove invaluable.

Printer etiquette. If you or your team really do have to print, make sure it’s double-sided and on recycled paper. Any non-confidential documents should be put in a recycling bin after use and a sustainable confidential document destruction programme implemented.